Today’s Outlook:
• Global equity indexes fell on Wednesday (29/05/24) while US Treasury yields rose after a third consecutive weak auction of US government bonds, plus investors worried about the prospect of higher interest rates as they await the key US inflation report PCE price index due on Friday. The Dow Jones Industrial Average closed down 411.32 points, or 1.06%, at 38,441.54 (its lowest point in almost a month), the S&P 500 ended 0.74% lower at 5,266.95, and the NASDAQ eroded 0.58% to 16,920.58 (retreating after closing above the 17000 level for the first time last Tuesday). Wall Street indices weakened following European stocks closing in the red: the STOXX600 European index closed down 1.08% (the biggest percentage decline since mid-April); similarly, MSCI’s 47-country stock index also dropped 1.08% to 783.87, close to its biggest daily decline on April 30.
• As the month-end approached, it was expected that investors would undertake profit-taking, amid sluggish 7-year US TREASURY auctions, following the same situation a day earlier in the 2- and 5-year bond auctions. Thus, yields climbed up in 3 consecutive auctions and hit the stock market. The 10-year US Treasury yield reached its highest level in 4 weeks and was last up 7.2 basis points at 4.614%. The 2-year bond yield, which usually moves with interest rate expectations, rose 1.8 basis points to 4.9747%. The market again kept a close eye on the US Treasury yield curve which measures the gap between 2- and 10-year bond yields (which is seen as an indicator of economic expectations), narrowing to negative 36.3 basis points. The 7-year yield rose to 4.64% from 4.56%. Wednesday’s auction of USD 44 billion worth of US 7-year debt resulted in a high yield of 4.65%, above the expected level. In terms of currencies, the higher bond yields also lifted the DOLLAR INDEX up 0.44% to 105.12. The DXY which measures the greenback’s strength against other major world currencies, triumphed over the Euro which was down 0.51% at USD 1.08, and rose to a 4-week high against the Japanese Yen after strengthening 0.34% to 157.69, thereby reaching its highest level since May 1.
• Later tonight, market participants will refocus on preliminary US GDP for the first quarter, which is also forecast to weaken by around 1.6% qoq, quite a drop from the previous quarter’s 3.4%. The week’s Initial Jobless Claims data is the first in a series of important labor reports next week, expected to show jobless claims increased slightly to 218k, from 215k in the previous week.
• Market participants are taking a WAIT & SEE stance ahead of important economic data releases: US PCE price index scheduled for Friday, as well as the full US employment report next week. In yesterday’s afternoon, the US central bank released the BEIGE BOOK survey that showed economic activity continued to expand from early April to mid-May, but firms are a little pessimistic about the future amid the threat of weakening consumer demand at a time when inflation is still on the rise. Stagnant inflation and hawkish comments from central bankers have forced market participants to lower expectations of a pivot this year to just once in November or December, as reported by the CME FedWatch Tool.
• EUROPE & ASIA MARKETS: preliminary GERMAN CPI (May) forecast shows their Inflation also has the potential to heat up to 2.4% yoy, from 2.2% previously. Today, an important Unemployment Rate (Apr.) data from EUROZONE is expected to remain unchanged from 6.5%.
• COMMODITIES: OIL prices weakened on concerns of weakening gasoline demand in the US as well as the potential for the Fed to keep interest rates higher for longer. US WTI crude oil was down 0.75% at USD 79.23/barrel and BRENT depreciated 0.74% at USD 83.60/barrel. However, there were still bullish factors that could have boosted prices, when the release of data from the American Petroleum Institute (API) early this morning showed a drop in US oil reserve stocks by 6.5 million barrels in the week ending 24May, which was greater than expected at only 1.9 million barrels, and a big loss compared to the influx of 4.5 million barrels in the same week last year and the average addition of 1.1 million barrels over the past 5 years (2019-2023). Other views that serve to support prices are the expectation that the OPEC+ meeting on Sunday will extend voluntary production cuts by 2.2 million bpd; as well as China whose economy is set to grow 5% this year, after the IMF raised their forecast from the previous level of 4.6%. Rising tensions in the MIDDLE EAST CONFLICT also contributed to the weakening of oil prices. It is known that Israel has sent tank attacks to the Rafah region and predicted that the war with Hamas militants (backed by Iran) will last all year. The Houthi militants (affiliated with Yemen) have launched attacks on 6 commercial ships in three different seas; and Iran confirmed support for the Houthis in the form of Ghadr sea cruise ballistic missiles.
• GOLD prices in the spot market fell 1.01% to USD 2,337.07/ounce due to the strengthening Dollar and higher bond yields, plus hawkish comments from Fed officials on Tuesday still weighing on sentiment.
• JCI plunged another 1.56% / 113.4 points to below 7200 level even breaking 3 layer Support Moving Average, hit by IDR 1.66trillion foreign selloff. NHKSI RESEARCH sees a precarious situation at stake, whether JCI is able to bounce back from the broken upper channel support (downtrend), or should continue consolidation towards 7060-7020. Investors/traders are advised to WAIT & SEE first to be safe considering the unfavorable regional sentiment.
Company News
• EXCL: Take Over Link Net’s Business Unit
• ELSA: Sharia Funding Supports Long-Term Business
• NCKL: Establish 2 New Business Units
Domestic & Global News
Low Renewable Energy Utilization, BKPM Boosts Investment in Large-Scale Clean Energy Projects
Israel Seizes Gaza’s Entire Border With Egypt, Presses With Raids Into Rafah
Download full report HERE.